United States: OECD Issues Final Package Covering Base-Erosion And Profit-Shifting

The Organisation for Economic Co-operation and Development (OECD) on Oct. 5 released its highly anticipated final package on base erosion and profit shifting (BEPS) measures. The G20 finance ministers reviewed the findings on Oct. 8.

BEPS refers to the negative effect on countries' tax bases of multinational companies' tax avoidance strategies. The OECD estimates that BEPS may be responsible for global corporate income tax (CIT) revenue losses equaling 4 percent to 10 percent of global CIT revenues, or nearly $100 billion to $240 billion annually.

The final package of BEPS measures includes 15 action steps. In the Oct. 5 release, the OECD published 13 final reports and an "Explanatory Statement" outlining both the achievements to date and next steps to ensure an efficient implementation of the agreed-on measures. These final reports include and consolidated the first seven reports, released on Sept. 16, 2014, and presented to the G20 in 2014. These holistic final reports address various topics including: hybrid mismatch arrangements, controlled foreign company rules, harmful tax practices and transfer pricing, among other issues. The accompanying Explanatory Statement complements these reports by emphasizing the OECD and G20 countries' commitment to consistent implementation in the areas of preventing treaty shopping, country-by-country (CbC) reporting, fighting harmful tax practices and improving dispute resolution.

The BEPS package provides uniform guidance and measures, which may be immediately applicable to certain countries such as the revised guidance on transfer pricing. Other measures will require countries to implement changes to bilateral tax treaties or may require domestic law implementation. Largely this comprehensive package represents a commitment by global leaders to combat BEPS in a coordinated and calculated fashion.

Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration, said during the press conference announcing the release that the report marks the changing of a paradigm. "We are moving from an environment where it was very easy to obtain double non-taxation by the use of the existing instruments . . . now the instruments are in the hands of tax administrations to make sure we don't have double non-taxation and that we don't have double taxation either."

On Capitol Hill, the House Ways and Means Committee Chair Paul Ryan, R-Wis., said that while the report's details still require a close review, he is worried that the BEPS project will increase burdens on U.S. multinationals. One area where Ryan and his counterpart, Senate Finance Committee Chair Orrin Hatch, R-Utah, have expressed reservations is with regard to regulatory implementation by the Treasury Department of CbC reporting. Ryan and Hatch argued in an August 2015 letter that Treasury lacks the authority to issue regulations to implement CbC reporting. Treasury has taken the position that it does have such authority.

Implementation of the OECD's proposals by the United States would require administrative efforts on behalf of the IRS and Treasury, as well as legislative efforts by Congress. The proposals remain controversial in Congress. Nonetheless, the president's fiscal year 2015 budget contained some legislative proposals related to BEPS.

Companies with large or expanding international footprints should closely monitor the BEPS plan implementation and begin taking initial steps to comply with the guidelines that will likely soon be established in many countries around the world. Additionally, certain reports may have an immediate impact on multinational companies with activities in countries where local enacted legislation makes reference to the OECD transfer pricing guidelines. For more information, click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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